After decades of isolationist government policy, Uzbekistan is taking tentative steps into the global capital markets and is looking to attract foreign investment. Kimberley Long looks at the country’s steep learning curve. 


Uzbekistan is a country learning how to operate in a connected world. After 60 years as part of the USSR and, following independence in 1991, a further 25 years under the isolationist policies of president Islam Karimov, the country is looking outward for the first time in almost a century. 

Under president Shavkat Mirziyoyev, Uzbekistan has begun a series of reforms in banking, business and civil liberties. Notably, these include a move away from the state ownership of industry. This will involve the government halving its level of company ownership. Sunatulla Bekenov, director of Uzbekistan’s State Asset Management Agency, explains the country has embarked on a series of irrevocable reforms. “Private ownership of state-owned companies will be increased to 80% of shares, and instruments will be developed to get capital into these companies,” he says. 

Atabek Nazirov, director of Uzbekistan’s Capital Markets Development Agency, adds: “There is a target for 10% free float to gross domestic product in five years. It is an ambitious plan, but South Korea managed to see 9% in the 1970s following market liberalisation.” 

In order to achieve this, Uzbekistan’s legal system is being overhauled. “Capital market legislation is to be reformed radically,” says Mr Nazirov. “We are planning to unify more than 100 legal acts to make them easy and direct. To support this initiative, the US government is considering technical assistance, as noted by secretary of state Mike Pompeo during his visit to Uzbekistan in early February 2020.” 

Planned IPOs

To achieve greater liberalisation, there are also moves to put a range of Uzbeki companies forward for initial public offerings (IPOs). There have already been a handful of IPOs, involving the likes of Aloqabank and glass manufacturer Kvarts. Other companies currently being primed for IPOs are in the plastics, steel and cement sectors. 

“We have put together a selection of 20 state-owned champions for privatisation through IPOs between 2020 and 2024,” says Mr Nazirov. “There are very ambitious plans in place, supported by strong demand from corporates. There is a huge pipeline of investment opportunities locally.” 

With this liberalisation, the country has been looking to the international markets for guidance. The Central Bank of Uzbekistan worked with the World Bank on creating a new set of financial sector laws, which will result in the central bank holding a gatekeeper function to ensure private investors meet a set of common standards, and are subject to continuous monitoring. The central bank has also been given powers of supervisory judgement, which are legally protected from industry and political pressures. These changes were approved by the country’s senate in October 2019, and bring banking in Uzbekistan in line with international expectations. 

With recognisable legal structures in place, it is hoped that foreign investors will be reassured. Mr Bekenov believes there are further opportunities for industries to develop, and for overseas investments to flow into the country. “There are parts of the economy that are in need of loans to finance expansion. Food production and processing both require foreign direct investment,” he says. “There is also potential for significant investment into the mining sector.” 

Debut bonds 

Attracting overseas interest has extended to the bond markets, and Uzbekistan took its first steps into bond issuance during 2019. JSCB Uzpromstroybank issued its first dollar-denominated Eurobond on the London Stock Exchange (LSE) in November 2019. 

The decision to issue in London was a tactical one. “It was decided to issue the bond at the LSE to be close to the funding source,” says Aziz Voitov, chairman of the board of JSCB Uzpromstroybank. “Also, issuing in London means it would be in the spotlight of the world capital markets.” 

The strategy paid off. “The Eurobond was oversubscribed four times at $1.25bn, and came wholly from international investors,” says Mr Voitov. “We did not seek local investment, having previously issued a local currency bond of UZS150bn [$15.8m].” 

This first international sovereign som-denominated bond, known as a Samarkand bond, was issued in February 2019. Through these, Uzbekistan plans to open up international markets for its state-owned enterprises to access foreign investment, but without foreign exchange rate risk. 

And Uzbekistan is already looking at the next stage. Mr Nazirov says the development of the secondary market for government-issued bonds is a priority. “A government-guaranteed bond with high yield is an attractive instrument for investors and will also serve as a benchmark for the emerging bond market in Uzbekistan,” he adds. 

Opening up banking 

Success in the bond markets required considerable work to educate prospective investors on the changes taking place in Uzbekistan, and the bonds were released after visiting investors directly. 

“There was considerable interest from the international roadshow, prompted by the widespread reforms taking place in Uzbekistan,” says Mr Voitov. “We hosted more than 60 meetings in Frankfurt, Zurich and London. Investors wanted to know about the changes related to macroeconomics and the reforms to the banking sector.” 

Odilbek Isakov, deputy finance minister of Uzbekistan, adds: “We were able to address any questions or concerns they had over investing in Uzbekistan.” 

Meeting with the international community was helpful in educating the Uzbekistani contingent about best practice. “Hosting the roadshows was a positive and constructive learning experience, and we received lots of feedback,” says Mr Voitov. “This helps us to build the basis of becoming a world-class institution.” 

Mr Isakov believes the success of the bond came down to replicating stable market models. “The Eurobond was priced justly, as was demonstrated in the strong uptake from investors,” he says. “There were investors from Asia, Europe and the US.”  

The successful Uzpromstroybank issuance has paved the way. “Due to their lack of experience, the banks needed to learn how to successfully issue a bond,” he continues. “Issuing this first Eurobond has brought into focus what the country still needs to learn in preparing companies for their own bonds or for IPO. The success of the bond opens up the market for other banks and companies. It lays the groundwork for future bonds. The education programme was successful, and the next banks to issue will be able to leverage this.” 

Energy diversity 

Beyond the capital markets, Uzbekistan has its sights on the modernisation of its energy sector. The aim is to overhaul utilities to ensure a consistent energy supply to both the population and the country’s growing industrial sector. Significant projects are already in the planning stage to meet the target of increasing production of petroleum products by 1.8 times, and natural gas production by 1.2 times by 2030. 

During 2020, three thermal power plants will undergo upgrades worth a total of $978.4m. There are further plans to export 2.15bn kilowatt hours of electricity to Afghanistan during 2020, valued at $128.8m.

These developments come with international backing. Uzbekistan has been receiving support from the multilateral banks. In February 2020, the Ministry of Energy announced it was collaborating with the Asian Development Bank to launch a pilot public-private partnership to build a solar power station. The plant will assist Uzbekistan in its aim of generating 1 gigawatt of energy from solar. 

During December 2019, the Asian Infrastructure Investment Bank (AIIB) stated it would be investing in Uzbekistan for the first time. The AIIB is working alongside the World Bank to provide $82m to Uzbekistan to improve the quality of infrastructure in villages in the east of the country. The Prosperous Villages Project will focus on providing water for drinking and irrigation, sanitation, electricity and maintenance of roads and footpaths. The projects offer another opportunity for international investment, and Uzbekistan is eager to build on the momentum it has created.  


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